What is the Wealth Index?
As answered by Daniel C. Nelson, October 15, 2004:
The “wealth index” is an attempt to measure the relative financial strengths of the families that send their students to our colleges. By plotting the wealth indexes and comprehensive charges (price) for a group of schools we can draw conclusions about the relative pressure on financial aid programs at each school. For example, there is more pressure on the financial aid program at a higher priced school with families of modest wealth than there is at a similarly-priced school with wealthier families.
I first started calculating a wealth index and plotting “price compared with family wealth” in the 1980’s for the 13 schools of the Christian College Consortium. Beginning in 1999, we began the CCCU financial aid survey and continued this chart for the larger group of schools. The proliferation of students in non-traditional programs (such as degree completion programs) at CCCU schools has made the collection of data exclusive to students in traditional programs difficult. This detailed explanation of the wealth index methodology is written to show the importance of clean, segregated data (for only students in traditional programs) when preparing this chart.
The wealth index is calculated as follows:
(Aggregate expected parent contribution for needy, dependent students + assumed aggregate expected parent contribution [assumed to be tuition, fees, room & board] for all non-need, non-independent students) divided by the total number of non-independent students.
An assumption is made that all non-aid applicants in the traditional undergrad population would be dependent students if they filed the FAFSA. All independent students are excluded from this calculation.
Here’s an example: Christian University (CU) enrolls 2,000 students: 1,100 in the traditional undergraduate program, 600 undergrad degree completion students, and 300 graduate students. Only the 1,100 students in the traditional undergrad program are included in this study. Of those, 800 completed a FAFSA and were determined to be dependent (700 showed need, 100 did not), 100 were determined to be independent, and 200 did not file the FAFSA. This analysis excludes the 100 independent students, but evaluates the remaining 1,000 students.
Tuition, fees, room and board at CU is $22,000. The aggregate assumed expected parent contribution for the 300 non-need students (100 who filed the FAFSA, 200 who did not) is $22,000 X 300 = $6,600,000.
The expected parent contribution (from the ISIR record) for the 700 needy, dependent students was added up and totaled $6,300,000, an average PC of $9,000 per dependent, needy student. (Test your data to be sure that no individual PC is less than 0 or more than budget, and that each student has a PC.)
Then apply the formula: ($6,300,000 + $6,600,000) / 1,000 = $12,900
The wealth index for CU is $12,900.
The “price compared with family wealth” chart would place CU at X=22,000 and Y=12,900 on an XY grid. Other institutions are placed on the chart and a regression line describes the mean. Schools above the line have families that are relatively more able to pay that institution’s price, while those below the line are more reliant on financial assistance to meet the price.
For the future: Differences in discount rates have a subtle influence on this chart. I’ll be experimenting with ways to factor in the influence of discount rates on our understanding of the wealth index comparisons.